2004 Best Practices Study

Observations of Bank-Owned Agencies

In recent years, the banking industry has reconfirmed both its commitment to the insurance distri-

bution business and its intent to continue building through acquisition. An imperative learned by

the acquiring banks: buy quality. Simply stated, the acquisition of a mediocre agency will pro-

duce no better than mediocre results for the bank. With most banks setting their sights higher than

mediocrity, the pursuit of quality agencies is intensified. But how is quality defined. Though a

derivative of intangibles (e.g., leadership, talent, etc.), quality is often defined by results (e.g.,

growth, profitability, etc.).

This pursuit of high-quality, top-performing agencies is increasing the presence of bank-owner-

ship among Best Practices agencies. For example, among this year's field of Best Practices agen-

cies above $500,000 in revenues, 11 (7.1%) are currently owned by banks. So, how have these

agencies fared under bank ownership? Well, a reasonable answer is "it's difficult to tell". A wide

range of variables makes statistically significant comparisons of results difficult. For example, the

11 bank-owned agencies range in revenue dollars from slightly less than one million to nearly

sixty million, for an average of thirteen million. By comparison, the 154 non-bank-owned agen-

cies above five million dollars in revenue average slightly more than nine million dollars.

Therefore, some differences in results may be partially attributable to size differences. However,

statistical significance aside, a comparison of the two groups yields several observations that may

be worth noting. Following are a few examples.

Growth

Does bank-ownership impact agency growth? Generally, yes, because bank-owned agencies tend

to be more acquisitive than independently owned agencies. But what about internal, or organic,

growth? The 154 non-bank-owned agencies averaged organic

growth last year of a healthy 12.4%. But, comparatively, the 11

bank-owned agencies, grew organically at nearly twice this

rate, or 21.6%. The impact of cross-selling insurance to bank

customers is not discernable in this analysis but is presumed to

offer a partial explanation for the disparity of results. However,

the modest results for most bank cross-sell efforts suggest addi-

tional contributing factors.

The most notable variances in reported growth are in life and

health products. Specifically, the bank-owned agencies pro-

duced organic growth in group life and health revenues of

19.7%, compared to 9.2% for their non-bank-owned counter-

parts. Likewise, in individual life and health revenues, the

bank-owned agencies reported growth of 8.3% versus (2.0%)

for the non-bank-owned agencies. The bank-owned agencies also produced a stronger rate of

growth in property and casualty revenues than did the non-bank-owned agencies, though the dif-

ferential was less significant.

2004 BEST PRACTICES STUDY - APPENDIX

175

The 154 non-bank-

owned agencies aver-

aged organic growth

last year of a healthy

12.4%. But, compara-

tively, the 11 bank-

owned agencies, grew

organically at nearly

twice this rate, or

21.6%.